Most dealers believe shrinking margins are due to a combination of more informed customers and auto makers' margin cuts.
Although these factors do add margin pressure, they are not the key causes of shrinking front-end gross.
The No.1 cause is the sales consultant.
The typical North American salesperson adds little or no value to the customer experience. There is a lacking of personal connection, insight and the “wow” factor. There is no reason for a customer to pay any more than rock bottom price.
What are most of today's dealers doing about this?
They are working hard to perfect last century's sales model. They're scouring the ranks of existing sales people looking for that needle in the haystack and then piling on incentives for the sales people and managers best at wrestling huge margins from their customers.
Those who have market leadership today are basically doing 1975 better than their competitors.
Add Value, Improve Front-End Grosses
Everybody knows that when you add value to a transaction you can charge more. But how do you add value to a sales process? Here's what today's automobile buyers are looking for:
- A fast process.
- A simple process.
- A process that is fair for everyone.
- A process they can control.
- A knowledgeable sales consultant who answers questions and works as the customer's advocate.
Look around your showroom floor.
Do your sales consultants respect customers for the homework they have done? Do they make things easier and quicker? Are your sales consultants helpful?
Do they know what they're talking about? If so, you are undoubtedly earning more front-end gross than your competition.
But if you assess your showroom honestly, chances are four in five you won't see any of this.
Who Will Sell the Cars?
Of course, our industry has never been good at recruiting quality salespeople. Top sales consultants have wound up in our dealerships almost entirely by accident.
They knew someone at the dealership. Or thought they'd try selling cars in between “real” jobs. Or we landed an old war horse who bounced from one hot brand to another and finally got tired of job hopping.
The ones who made it had natural selling skills and liked the business. They made good livings from straight commissions and most wound up in sales management. (Where they still are today).
While there are still some grizzled veterans and lucky hires appearing from time to time, we just aren't seeing the kinds of people today's customers want to work with. What that means, sadly, is the retail auto industry is headed for a staffing crisis in the sales department; and that includes individuals capable of becoming sales managers in the future.
No Gen Y'ers
Today, there is no way someone under the age of 25 with natural selling skills will even consider taking a job in a traditional dealership. Why?
- They expect high quality training and to be paid for it.
- They expect to work in sophisticated, technology-enabled businesses.
- They will not work 50+ hours a week.
- They will not work for straight commission.
- They will not tolerate the old-fashioned “command and control” desking environment.
Besides, there are too many hip, fun alternatives out there, such as Best Buy, Apple Stores, Abercrombie & Fitch, Ben & Jerry's, Verizon Wireless, and so forth.
Women Need Not Apply
If mature professional men and male Gen Y'ers aren't available, what about women? Unfortunately, again, the ability of the traditional automobile dealership to attract and retain women sales consultants has been dismal.
Today, women make up less than 7% of retail auto sales consultants. Less than 3% of dealerships have sales staffs that are more than 15% female. So, when we really need to find as many qualified sales candidates as possible, we've basically another 50% of the population, “We don't want you.”
So removing experienced and Gen Y males and 93% of women leaves us with a small pool in which to find high-quality salespeople.
And we make that slice even smaller by searching for people our society doesn't produce: good negotiators. In some parts of the world, negotiating for goods and services is a way of life, but that's not the case in the good old US of A.
So we're basically in pursuit of D.B. Cooper, the guy who jumped out of an airplane with all that money and was never seen again.
Too Many Middle Managers
Data from my company indicate the vast majority of sales are closed by managers and not by sales consultants. Why does this matter? The traditional turnover and desking process worked pretty well for a good portion of the last century. But this approach is taking a toll on human resources. Here's why:
We've become management-centric, as opposed to relying on sales consultants to create value. The average dealership today has one variable department manager (including finance and insurance) for every 2.3 sales consultants. This heavy layer of middle management drains compensation away from the people who are supposed to be building customer relationships and selling cars.
No other retail industry has this costly imbalance of managers to line personnel. Of course, you get what you pay for. The good people leave, the poor ones stay, and you justify your top-heavy staffing model.
So, in the end, we guarantee our inability to retain quality sales consultants by denying them an opportunity to earn a fair wage.
And the Solution Is…
Sales managers and most general managers will tell you more of the same is fine. I'm not going to do that. It's time to stop trying to perfect buggy whips and start reinventing the way we retail automobiles.
Dealership executive teams must make significant changes or face the consequences of sales consultants who don't add value; managers who can't find or afford to hire quality sales people; and front-end grosses turning negative.
These are the significant changes:
- 40-hour work weeks.
- Limited or no price negotiation.
- Comprehensive, continuous sales and management training.
- Benefits packages comparable to a Best Buy or Abercrombie.
- Converting sales management “command and control” supervisors into mentors and coaches.
- Integrating technology throughout the entire sales process.
- Establishing recruiting strategies that attract the people your customers want to deal with and that means using new media rather than just newspapers.
We're talking about meeting some significant challenges head on. I'd like to close by quoting three of Jack Welch's Six Rules for Successful Leadership:
- Control your destiny, or someone else will.
- Face reality as it is, not as it was or as you wish it to be.
- Change before you have to.
Mr. Dealer, the decision is yours.
Mark Rikess is a dealership consultant based in California.